Experts lambaste 30-percent tax on purchases of foreign currency

Experts have criticized the government's move to introduce a 30-percent tax on purchases of foreign currency by individuals and legal entities.

Experts have criticized the government's move to introduce a 30-percent tax on purchases of foreign currency by individuals and legal entities.

Vadzim IosubVadzim Iosub, a Minsk-based financial analyst, warned that the controversial measure would lead to the multiplicity of the Belarusian rubel's exchange rate and revive the once-defunct black market for foreign currency.

"The black market's exchange rate may be higher than the official exchange rate set by the National Bank by 15 percent at the initial stage. It will be advantageous for both buyers and sellers," said the expert.

Mr. Iosub said that the measure would have no positive effect and would only create additional problems.

Yaraslaw RamanchukEconomist Yaraslaw Ramanchuk, who leads the Ludwig von Mises think tank in Belarus, echoed the opinion. "A black market will appear beyond any doubt, the multiplicity of the exchange rate is inevitable," he predicted.

Mr. Ramanchuk said that he was bewildered by the measure. "One cannot cope with foreign currency with one's fists. I can't understand what the Belarusian authorities made this decision for," he said.

Syarhey ChalyThe National Bank of Belarus and the Council of Ministers imposed restrictions on purchases of foreign exchange because Alyaksandr Lukashenka has prohibited them from devaluing the Belarusian rubel, economist Syarhey Chaly told BelaPAN.

“The Council of Ministers and the National Bank have been set the task of preventing a rubel devaluation,” Mr. Chaly said. “How to fulfill this task without losing Belarus’ gold and foreign exchange reserves? There is no devaluation, but it’s impossible to buy currency at the official rate.”

Mr. Chaly predicted that the imposition of a 30-percent fee on purchases of foreign exchange would paralyze the official exchange market and encourage illegal cash dealing.

He warned that the government was repeating the mistakes made during the 2011 economic crisis. For several months that year, commercial banks were required to offer foreign currencies at the National Bank’s official exchange rate, which was much lower than the market rate. As a result, banks simply did not sell US dollars, euros and other hard currencies. When the authorities finally allowed the rubel’s official exchange rate to rise until the supply matched the demand, it plunged to about 8,500 rubels per dollar, compared with 3,000 rubels before the crisis. Experts pointed out that the exchange rate could have been stabilized at a much lower level if the government had devalued the rubel promptly instead of procrastinating for political reasons.

“Authorities are again pretending that no devaluation has taken place,” Mr. Chaly said. “And once again they have chosen the most stupid tactic, trying to prevent market forces from determining the real exchange rate of the rubel.”

He warned that Belarusian companies would seek to bypass the requirement to sell half of their foreign currency proceeds at the official exchange rate.

Mr. Chaly noted that Mr. Lukashenka had given the National Bank and the Council of Ministers two mutually incompatible orders, namely, to preserve Belarus’ gold and foreign exchange reserves and to prevent a rubel devaluation.

“The only question now is how long it will take authorities to stop its nonsense and let market forces take over,” he concluded.